Self-Insured vs. Fully-Insured Medical Plans


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As an employer, you need to have a basic understanding of the different types of insurance plans. If you want to attract the best talent and retain your top employees, you already know how important health insurance is as a benefit. However, as costs continue to rise, especially for employers, many business owners are rethinking how they offer health insurance.

The better you understand health insurance, the more equipped you’ll be to make a smart decision about the coverage you choose to offer your employees. When it comes to insurance, there are two main types you need to know about: self-insured and fully-insured. In this guide, we’ll uncover the differences between these two types of coverage to help you make a smarter decision.

Self-Insured Plans

As the name implies, a self-insured plan means the employer will take most of the risk upon themselves. When businesses self-insure, they’re basically saying they will act as the insurance provider. Employees will claim medical benefits through the employer, and the company will pay any claims out-of-pocket.

All of these funds for medical expenses will come from the businesses own assets. As the insurer, the business will have to be aware of the risk that might come from a large medical emergency or rising health costs. However, that doesn’t mean it doesn’t have any benefits. For instance, a self-insured plan is an effective way to avoid the costs associated with traditional group coverage. In addition, small companies with only a handful of employees don’t have as much risk as a larger pool of employees.

Finally, businesses will set coverage guidelines and eligibility requirements in order to provide a fair amount of coverage without draining funds. All claims are filed through a third-party to keep things fair, and this gives the company a level of protection. Learn more about small business health insurance.

Pros of Self-Insured Plans

  • Long-term savings compared to group coverage
  • More control over benefits
  • Companies have a firm understanding of healthcare spending

Cons of Self-Insured Plans

  • High-risk level
  • Savings might not happen for years
  • Employers will be responsible for providing coverage

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Fully-Insured Plans

On the other hand, a fully-insured plan is when a company uses a group insurance plan through a health insurance provider. This is what most people are familiar with when it comes to insurance. The employer won’t feel the effects of rising medical costs in the same way as with a self-insured plan. In addition, the employer can negotiate costs with the insurance provider to get a better rate both for employees and themselves.

In the case of a fully-insured plan, the insurance provider assumes all of the risk, not the company. This is especially valuable for larger businesses where health problems are more likely to occur. There are no financial surprises, and this makes it the more popular choice for the majority of large businesses.

Finally, because employers can work with a traditional insurance provider, employees themselves will have greater access to affordable health insurance options that suit their needs. Ultimately, it’s a much more stable, secure option. While benefits like health insurance account for roughly 32% of all employer costs towards employee compensation, this is money well spent.

Fully-Insured Plan Pros

  • Fewer cost changes
  • Businesses have the opportunity to negotiate lower rates
  • Claims are managed by the provider
  • The insurance company assumes the risk

Fully-Insured Plan Cons

  • Premiums can be costly
  • Negotiations are yearly
  • Coverage benefits are often unclear
  • High tax burdens

Choosing the Right Type

It’s up to you to decide which type of the above options is right for your business. In general, smaller businesses benefit more from self-insured plans while bigger businesses can take full advantage of fully-insured plans. Remember, you’ll have to take the risk into account when making your decision.

Start by calculating your own risk, your number of employees, and your projected costs. From there, you’re able to make a smarter decision about your own business health insurance.


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